LCCI commends CBN on the adoption of flexible exchange rate policy

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The Lagos Chamber of Commerce and Industry [LCCI] commends the decision of the Central Bank of Nigeria (CBN) at its recent Monetary Policy Committee meeting to adopt a flexible exchange rate regime. The Chamber believes that this policy choice offers the following benefits to the economy:

  1. Improvement of the efficiency of foreign exchange allocation in the economy.
  2. Reduction in the distortions that currently characterize the forex market and bring the economy closer to equilibrium.
  3. Improvement of liquidity in the foreign exchange market
  4. Reduction in the current trade arrears
  5. Reduction in the arrears of remittances which has accumulated for the past 18 months.
  6. Reduce uncertainty which investors have been grappling with over the last one year.
  7. Boost investors’ confidence and attract greater FOREX inflows to the economy.
  8. We also welcome the decision of the CBN to refrain from further tightening of monetary policy at this time. The current context is that the economy has been declining. The Gross Domestic Product (GDP) has contracted for the first time in twelve years; unemployment is on the rise; manufacturing capacity utilization has been weakening; and investors’ confidence has been at its lowest ebb.  The decision not to tighten monetary policy is therefore appropriate.
  9. However, as the CBN articulates the framework for the new forex regime, we propose that due consideration should be given to the following:
  1. The economy desires a transparent FOREX market which guarantees level playing fields for all investors.
  2. Need for clarity on what the CBN describes as a special window for critical transactions for which preferential rates will apply. We would like to caution against possible abuse and distortions that such a window could create. It could pose a risk to the entire system.  We would like to be assured that the window for the critical transactions will be managed transparently and in a manner that it will not create distortions in the economy.
  3. Export proceeds, capital importation and Diaspora remittances should be allowed into the economy through the autonomous window at prevailing market rates. And the owners of such funds should have unhindered access to their funds.
  4. CBN should revisit the list of items that have been placed on exclusion list of the FOREX market. Many critical inputs of manufacturing companies are on the list and this has crippled the operations of such companies creating significant job and output losses.

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